Car Loan

Understanding Hire Purchase

Hire purchase (HP) financing is one of the most common ways for people to buy private vehicles. If you take on HP financing, you become the hirer while the financier financing the vehicle is the owner. As the hirer, you will have to pay instalments to the financier based on an agreed duration while you will have possession of the vehicle. When all instalments are paid up, ownership is then transferred to you, the hirer.

Things to remember about your agreement

You may choose your financing to be based on either fixed or variable rates.The maximum rate allowed under fixed rate financing is 10%. For variable rate financing, term charges will be quoted at a margin above the base lending rate of the banking institution concerned.

A penalty is imposed on overdue instalments with its interest charged on a daily basis. For fixed rate financing, the maximum charge allowed is 8% while for variable rate financing, it is 2% above the prevailing term charges for variable rate.

Based on the credit assessment made on you, the banking institution may require a guarantor as additional security to support your application. In the event that the hirer defaults on payments, the guarantor is responsible for the unpaid portion of the HP facility including interest.

It is your responsibility as the hirer to purchase insurance cover for your motor vehicle other than for the first year. The banking institution normally requires a comprehensive insurance policy/takaful plan to be taken on the motor vehicle. You may check the market value of your vehicle to determine the sum insured for the motor insurance / takaful from www.carprices.com.my.

This occurs when the hirer defaults in repayments and the owner takes possession of the motor vehicle. Generally, the banking institution that facilitates your HP agreement will engage a registered repossessor to repossess any motor vehicle.

Things to remember about your agreement

To ease your banking procedures, use the following checklist to identify the relevant documents needed for banking procedures and applications. The exact documents required may differ among banking institutions. Do check with your banking institution to confirm what documents are needed before applying.

Interest for HP facility is a fixed rate up to a maximum of 10% flat per annum for a fixed rate hire purchase facility. The interest rate for a variable rate hire purchase facility is quoted at a margin above the banking institution's base lending rate.

You can either insure with an insurance company on the banking institution's panel or an insurance company of your choice. Normally, banking institution have at least four insurance companies on their panel for the convenience of hirers.

Generally, the banking institution will keep the registration card until the HP facility has been fully settled in order to prevent any inconveniences that may arise due to damage, misplacement or theft of card. The banking institution also provides insurance and road tax renewal services.

The banking institution can repossess the motor vehicle anytime after 21 days from the date the Fourth Schedule notice was served if the overdue installments are not paid. (The notice may be served by personal delivery or by registered mail to the last known address).

The repossessor will have to show you an authority card, which has the name and address of the repossessor and banking institution, nature of appointment of the repossessor and the signature of an authorised representative of the banking institution.

After the repossession, the banking institution will issue you a Fifth Schedule notice. This notice gives you a chance to settle the amount outstanding within 21 days. You can get the motor vehicle back provided that, before the expiry of 21 days, you: pay all outstanding arrears with interest due and the costs incurred by the banking institution (costs of storage, repair or maintenance, repossession and re-delivery); or settle the balance in full including the costs of repossession, storage, repair or maintenance

Yes. The banking institution can claim the payment from the guarantor because the guarantor has agreed to undertake the liability to repay your debt to the banking institution in the event of default by you.

As a guarantor under a HP agreement, your rights include the following: To receive a copy of the HP agreement. To receive all notices on payment issued by the BI to the borrower. To be discharged from your liability once the amount due to the banking institution is fully paid. To take legal action against the hirer for breach of obligation. To be indemnified by the hirer against claims by the banking institution after you have paid the amount due to the banking institution. As a guarantor, you are liable to the banking institution in the event the hirer defaults in payments of instalments or breaches the terms of the HP agreement.

Yes. This is because your liability to pay the monthly installment does not cease with the loss of your motor vehicle. However, you may claim from the insurance company, the market value of the insured motor vehicle or the sum insured, whichever is lower.

If the personal representative has obtained a Letter of Administration or Grant of Probate, the rights, title and interest will be transferred to the personal representative who will take over the responsibilities of the hirer. Otherwise, the banking institution will repossess the motor vehicle after defaults in four successive monthly installments.

It is illegal to transfer/sell/part possession of the motor vehicle without the permission of the banking institution, who is the legal owner. If you do so, you may incur substantial losses and penalties as you are still fully responsible for the liability and losses incurred. Ensure that you have fully settled your HP facility before you sell your motor vehicle.